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Unemployment and extended labour force underutilisation rates(a)
Progress and the headline indicator
Paid work is the means through which most people obtain the economic resources needed for day to day living, for themselves and their dependants, and to meet their longer term financial needs. Having paid work contributes to a person's sense of identity and self-esteem. People's involvement in paid work also contributes to economic growth and development.
The number of people in Australia in paid employment has grown steadily over the last twenty years. In 1980, there were 6.3 million employed people in Australia. By 2003, largely due to population growth, this had increased by 51% to 9.5 million people. Over this period, the employment to population ratio for the civilian population aged 15 and over has increased from 58% to 60%.
Once in paid employment, many aspects of work affect people's wellbeing, such as hours worked, levels of remuneration, job satisfaction and security, opportunity for self-development, and interaction with people outside of home. An ideal indicator of progress would reflect these and other aspects of work to measure the extent to which Australians' work preferences are satisfied.
While a single indicator covering all these aspects is not available, useful indicators of progress may be obtained by looking at the extent to which people's aspirations for wanting work, or more work, are unsatisfied. The official unemployment rate, which is the number of unemployed persons expressed as a percentage of the labour force, is a widely used measure of underutilised labour resources in the economy. This has been chosen as the headline indicator, because of its relevance to the economic and social aspects of work.
Measures of underutilised labour such as the unemployment rate are sensitive to changes in the economy. For example, the unemployment rate is widely used as a key indicator of changing economic conditions across the business cycle.
Unemployment and long-term unemployment: longer term views
People unemployed for long periods may experience greater financial hardship, and may have more difficulties in finding employment because of the loss of relevant skills and employers' perceptions of their 'employability'. The long-term unemployment rate is the number of people who have been continuously unemployed for a period of 12 months or longer, as a percentage of the labour force. In 2003, the annual average long-term unemployment rate was 1.2%, compared with 3.7% in 1993 in the aftermath of the last recession. Movements in the long-term unemployment rate often lag movements in the total unemployment rate.
People's feelings of job security are thought to be closely linked to changes in the level of unemployment.2 This may be a consequence of people seeing other employees being retrenched or made redundant.
One way to measure people's perception of job security is to consider the proportion of workers who report that they do not expect to be working with their current employer or in their current business in 12 months' time. In November 2003, 10% of people in the workforce had this expectation. However, 8% of employees thought they would do this for voluntary reasons. Only 2% of employed people in 2003 thought they would need to leave their job for involuntary or economic reasons.4
Unemployment and retrenchment rates
Proportion of people working
There has been strong growth in the number of casual employees over the last two decades. Casual employees are usually not entitled to paid leave but receive a higher rate of pay to compensate for this and their lack of permanency. The number of casual employees can be approximated by the number of employees who are not entitled to paid holiday leave or paid sick leave.5 On this basis, the proportion of male employees who are casual employees has almost doubled, increasing from 13% in 1990 to 24% in 2002. Over the same period, the proportion of female employees who are casual employees increased from 28% to 32%. The pace of change has slowed in recent years.
These changes, which occurred in association with rapid growth in employment in service industries, are viewed by many employers and employees as beneficial. For example, for people employed in such jobs, often women and younger people, the flexibility associated with such arrangements may suit their particular needs. But the extent to which people's preferences for alternative work arrangements are not being satisfied also needs to be considered.
Average hours worked per week, full-time workers(a)
There has been a trend away from the traditional 9-to-5 job towards more diverse arrangements.6 The increased availability of part-time work has provided flexibility for people to balance work with family responsibilities, participate in education, or make the transition to retirement. The proportion of employed people working part-time increased from 16% in 1979 to 28% in 2003. But not all part-time workers are working their preferred number of hours. In 2003, 8% of employees were working part-time but wanted to work more hours. This compares with 3% in 1983 and 7% in 1993.
The average number of hours worked by full-time workers, and the proportion of employees who work long hours, have also increased in recent decades. Average hours worked by full-time workers in 1979 stood at 41 hours, compared with 43 hours in 1994 and 42 hours in 2003. The proportion of employees who worked 50 hours or more increased between 1979 and 1999, from 14% to 19%, but had declined to 17% in 2003. The proportion of employees who worked very long hours (60 hours or more), continued to increase from 8% to 11% between 1979 and 2003.
People working part-time or long hours(a)
Some differences within Australia
In a job market where there are too few jobs for all those actively seeking paid employment, it might be expected that groups with characteristics that are in low demand (e.g. people with low levels of educational attainment, limited relevant work experience, or in relatively poor health) would have greater difficulty in securing a job than those with more desirable attributes. Among the most disadvantaged groups in this regard are young people, older people with work experience in occupations that have declined in demand, and Indigenous Australians. The extent of disadvantage for some of these groups is examined in more detail below.
Significant economic and social changes over recent decades have altered the way in which work is organised and carried out. There have also been changes in the composition of the workforce, and in pay and other employment conditions and the way these are set. Some of these changes have been reflected in the rapid growth in part-time and casual employment, the emergence of different employment arrangements, and the increase in working hours. The impact of these changes has not been uniform across the various subgroups within the population.
As with their increasing participation in education and training, Australian women have taken a more active role in the labour force than was the case two decades ago. This can be illustrated by considering the changes in participation rates over time. The labour force participation rate is a total of the employed plus the unemployed as a percentage of the civilian population aged 15 years and over. In the years from 1985 to 2003, the labour force participation rate for women increased from 46% in 1985 to 54% in 1995 and 56% in 2003. In contrast, the participation rate for men decreased from 76% in 1985 to 74% in 1995 and 72% in 2003.
Unemployment rates among men and women have also changed relative to each other. The rates for women were lower than those for men throughout the 1990s, although they have come together in 2003. They had been higher in previous decades.
The increase in women's participation in employment has been strongly associated with an increase in part-time work, with women accounting for the majority of part-time workers (72% in 2003). Although most of the workers in part-time employment prefer part-time work to full-time work, 4.6% of female part-time workers and 10.5% of male part-time workers wanted to work full-time and were available, and actively looking for full-time work in August 2003.
Unemployment rates, by sex
Age group differences
Levels of involvement in the paid workforce vary through life. They initially increase with age as young people move from education and training (often combined with part-time work) to full-time jobs. They remain relatively high during prime working age, and then decline towards the years of retirement. Participation in the labour force is interrupted for many women as they take time out to raise families. In recent years women have increasingly participated in the workforce during their childbearing years, often in part-time jobs.
The likelihood of being unemployed is also partly related to life cycle stages. In particular, young people tend to have a high unemployment rate. In 2003, 6.3% of 20-24 year-olds were looking for full-time employment. However, most (almost 80%) of this unemployment was short-term (less than one year), in part influenced by young people entering the labour market for the first time.
Young people can have difficulty finding work during a recession, and the proportion becoming long-term unemployed increases. In 1993, 4.3% of 20-24 year-olds were long-term unemployed and looking for full-time work, whereas for 25-54 year-olds it was 2.6%. By 2003 the proportions had become quite similar (1.2% and 0.9%).
Unemployment to population ratio(a), by age group
Aboriginal and Torres Strait Islander peoples
When compared with the rest of Australia's population, Indigenous Australians have substantially lower levels of labour force participation and substantially higher levels of unemployment. Data from the 2001 Census of Population and Housing showed that the labour force participation rate among Indigenous people aged 15-64 was 54% (compared with 73% for non-Indigenous people in this age group). The unemployment rate for the Indigenous population (aged 15 and over) was 20% (compared with 7.2% for the non-Indigenous population).
To some extent, these disparities reflect where people were living and the job opportunities available to them. Among those aged 15 and over, more than one-quarter (27%) of all Indigenous people were living in a remote or very remote part of Australia compared with just 2% of non-Indigenous people. In these remote areas, more than half (53%) of Indigenous workers reported that they were employed on Community Development Employment Projects (CDEP). This is a scheme which enables participants to exchange unemployment benefits for opportunities to undertake work and/or training in activities which are managed by a local Aboriginal or Torres Strait Islander community organisation.
Unemployment rates, states and territories with the lowest rates in 2003
Unemployment rates, states and territories with the highest rates in 2003
Differences according to place
Opportunities for work vary across Australia with the nature and strength of the economic base and the relative growth of industries from place to place. This may reflect the fact that some places have been more adversely affected than others by restructuring within the economy, and the move away from traditional manufacturing to service industries in particular. Other factors, including the population's age composition and growth, and the occupation and skill base of residents, can influence regional differences in unemployment.7
Among the states and territories, Tasmania consistently had the highest unemployment rate throughout the 1990s. But, as with each of the other states and the territories, unemployment rates have generally declined through the 1990s. In 2003, the states with the highest annual average unemployment rates were Tasmania, Queensland, the Northern Territory, and South Australia.
Factors influencing change
Factors that influence labour underutilisation can be characterised as those related to the demand for labour and those related to its supply.
The demand for labour is strongly influenced by economic activity and therefore varies over the business cycle. The demand for specific types of labour will also vary with structural change within the economy. For example, there may be a decrease in demand for workers who have the skills required for declining industries, and an increase in demand for those people with the skills needed in newer types of occupations.
Factors which affect the supply of labour also influence the indicators. Factors which influence the supply of labour include: population growth and immigration; the willingness of people to work; policies that affect levels of remuneration from work vis-a-vis income from the social security system (e.g. minimum wage, taxation and income support policies); attitudes to combining work and family responsibilities; early retirement; and participation in education and training.
Links to other dimensions of progress
Work, and the economic and social benefits that flow from it, are important to the wellbeing of individuals and the broader community. The underutilisation of labour resources is a lost opportunity for producing goods and services, and income support and other services provided to assist the unemployed use government funds which could be used in other ways.
There are links between work or a lack of work and other aspects of progress. For example, studies generally suggest that unemployment is associated with crime, with poorer health, and with higher risks of financial hardship and lower levels of social cohesion.8 These associations tend to be stronger for those unemployed for longer periods of time. Reducing levels of unemployment may help to reduce the extent of these associated problems.
Economic growth is very strongly influenced by changes in labour force participation rates and labour productivity.
See also the commentaries National income, Education and training, Crime, Financial hardship, Family, community and social cohesion, and Health. The relationship between labour force participation, labour productivity, population and national income is discussed in the article Population, productivity and participation.